Torts and tortes

It’s pretty hard to lose weight. A lot evidence suggests that waist circumference is heritable, with as much as half the differences between individuals down to genes.

But this genetic explanation probably doesn’t explain social trends towards obesity; surely there haven’t been enough generations of heavier people having more kids than less heavy people (do they even have more kids?)

The issue gets weirder when we discover that animals living in human environments are also getting fatter, even lab rodents eating controlled diets!

Whatever the explanation for the macro issue, it’s refreshing to note that on the micro level, people are still responding to incentives. After a big 2002 anti-McDonald’s judgement 26 US states passed rules making it much harder to sue fast food companies for causing your weight gain. After this, people seemed to take more responsibility for their own weight and health.

This finding comes from a new paper, “Do ‘Cheeseburger Bills’ Work? Effects of Tort Reform for Fast Food” (latest gated, earlier pdf) by Christopher S. Carpenter,  and D. Sebastian Tello-Trillo. Here is the abstract:

After highly publicized lawsuits against McDonald’s in 2002, 26 states adopted Commonsense Consumption Acts (CCAs) – aka ‘Cheeseburger Bills’ – that greatly limit fast food companies’ liability for weight-related harms.

We provide the first evidence of the effects of CCAs using plausibly exogenous variation in the timing of CCA adoption across states. In two-way fixed effects models, we find that CCAs significantly increased stated attempts to lose weight and consumption of fruits and vegetables among heavy individuals.

We also find that CCAs significantly increased employment in fast food. Finally, we find that CCAs significantly increased the number of company-owned McDonald’s restaurants and decreased the number of franchise-owned McDonald’s restaurants in a state.

Overall our results provide novel evidence supporting a key prediction of tort reform – that it should induce individuals to take more care – and show that industry-specific tort reforms can have meaningful effects on market outcomes.

I’m not saying individual responsibility always works but maybe some of the blame for obesity is down to individual choice.

Well, yes and no Professor Krugman, yes and no

The economics of this is of course correct For Paul Krugman is indeed an extremely fine economist:

We may live in a market sea, but most of us live on pretty big command-and-control islands, some of them very big indeed. Some of us may spend our workdays like yeoman farmers or self-employed artisans, but most of us are living in the world of Dilbert.

And there are reasons for this situation: in many areas bureaucracy works better than laissez-faire. That’s not a political judgment, it’s the implicit conclusion of the profit-maximizing private sector. And people who try to carry their Ayn Rand fantasies into the real world soon get a rude awakening.

The political implications of this are less so, given that Paul Krugman the columnist is somewhat partisan.

And of course that implication is that since that private sector (as Coase pointed out a long time ago) uses bureaucracy at times then we should all shut up and simply accept whatever it is that the government bureaucracy decides to shove our way.

Which is to slightly miss the point: yup there’s command and control islands in that sea. Bit it’s that sea that srots through those islands, sinking some and raising others up into mountains. Which is something that doesn’t happen with the monopoly of government bureaucracy: they don’t allow themselves to get wet in that salty ocean of competition.

That planning and bureaucracy can be the most efficient manner of doing something? Sure. That sometimes it’s not? Sure, that’s implicit, explicit even in the entire theory. How do we decide? Allow that competition. It’s the monopoly of the government bureaucracy that’s the problem, not that we somtimes require pencil pushers to push pencils.

RIP John Nash

In a Think Piece for the Adam Smith Institute, Vuk Vukovic pays tribute to the endlessly influential theorist John Nash:

It is with great sorrow we hear that one of the greatest minds in human history died this weekend in a car crash with his wife while they were returning home from an airport. John Forbes Nash Jr., was widely known as one of the founders of cooperative game theory whose life story was captured by the 2001 film “A Beautiful Mind”, is truly one of the greatest mathematicians of all time. His contributions in the field of game theory revolutionized the way we think about economics today, in addition to a whole number of fields – from evolutionary biology to mathematics, computer science to political science.

You can read the whole piece here

When a fossil fuel subsidy is not a subsidy

You may have seen an IMF report in the news last week claiming that fossil fuels are subsidised to the tune of over five trillion dollars every year. This made good headlines, but only because the IMF chose to describe untaxed externalities as ‘post-tax subsidies’. This is unusual and misleading. I wrote about why in The Daily Telegraph:

The IMF’s idea of “subsidies” to fossil fuels refers to something completely different. They have taken the indirect costs to society of using energy – air pollution, traffic congestion, climate change – and, if governments haven’t imposed special taxes on one, called it a “subsidy”. The problem is, we already have a word for these things: externalities. And there is something rather Orwellian about describing a failure to tax something as a subsidy. Here’s an example of what we’re talking about: when my neighbours play loud music at night, it makes me worse off. I’d pay, maybe, £20 for them to shut up, if it wasn’t so awkward to go to the flat downstairs, knock on their door and start negotiating prices. Economists would say that they are imposing a £20 externality on me, and that in a perfectly efficient world, my building would charge residents around that much to play music, and give it to sleep-deprived neighbours like me. But, in the absence of that charge, nobody would say that those neighbours are being subsidised by me. It’s just not what the word means. Except, apparently, to the IMF.

That isn’t to say that externalities should never be taxed, if a private solution can’t be found. But we already have high fuel taxes in most of the developed world, and in the developing world these taxes will hold back growth. Since economic development has positive externalities, it’s not obvious that the negative externalities of fossil fuels outweigh the positives. You can read the whole piece here. 

Spotting Worstall’s Fallacy in the wild

In a discussion of Joe Stiglitz’s new book in The Observer we see this:

Back in 2008 the top 20% of households in the country were estimated to be worth 92 times more than the bottom 20%. The latest estimate puts the gap at more than 100 times. And a further £12bn of welfare cuts are planned by the new Conservative government. The gap between rich and poor is unquestionably widening.

That conclusion may or may not be right but it’s most certainly not supported by the evidence which is given of the contention. That evidence coming from this ONS report:

Total net wealth is defined as the sum of four components: property wealth (net), physical wealth,
financial wealth (net) and private pension wealth
. It does not include business assets owned by household members, for instance if they run a business; nor does it include rights to state pensions, which people accrue during their working lives and draw on in retirement.

It’s known as Worstall’s Fallacy simply because our own Tim Worstall bangs on about it so often. We cannot measure inequality (or poverty, any number of other things) without taking into account the things we do to reduce said inequality (or poverty, or any other problem). It’s only when we look at the post-attempt to solve the problem situation that we can turn our minds to whether we should be doing more, or possibly less, to try to solve this problem.

So, note that our definition of wealth there does not include that state pension: something we do to reduce the wealth and income disparities between those who can save for a private pension and those that cannot. Note that it includes private housing equity but not the capital value of a below market rate tenancy for life (“social housing”). It does not include the capital value of health care, or education, free at the point of use, for all the citizenry. It does not include whatever capital value we might ascribe to the social insurance policies that will provide us with an income in the case of economic misfortune.

We do all of these things because they make people wealthier. Perhaps not as wealthy as other arrangements might make them, but the essential driving point is that we consider health care, education, social insurance and so on make people wealthier. Thus, in our discussion of wealth we must include them. We cannot look solely at the market distribution of purely market wealth and even attempt to decide whether more or less should be done to try to change that distribution. We must look at the post- all the redistribution we already do situation to be able to make a decision.

To switch from wealth to income to make this point. The TUC has done the calculation about income inequality. Between the top 10% and bottom 10% the market inequality is about 30:1. Maybe that’s too high, maybe that’s not high enough, your moral choice. When we take account of taxation and benefits that falls, and when we take account of government provided services, that health care and eduation and so on, it falls again. To 6:1. Again, you can say that this consumption inequality is still too much, or not enough, your moral choice. But 6:1 is very definitely different from 30:1.

And what is the relevant ratio to be looking at if we want to make a decision upon whether to do more redistribution or less? Quite, it’s obviously that 6:1 one, not the 30:1. And so it is with wealth or poverty or so many other problems. The number we need for our decision is the extent of the problem on the ground, not the extent of the problem before all of the things that we already do.

Assigning reasonable capital values to the effects of both the welfare state and government provided services brings the 10/90 wealth ratio down to anywhere between 20:1 and 5:1. We could and would defend anywhere in that range dependent upon assumptions. Is that too much? Not enough? Entirely up to your moral choices. But it’s very different from that 100:1, isn’t it, and it’s also the relevant number we need to use when thinking about what to do next.